We need a new financial model to address California’s most pressing environmental problems

This post was co-authored by Ann Hayden of Environmental Defense Fund, Katie Riley of Environmental Incentives, and John Cain of American Rivers

Over the coming decade, the state of California will spend billions of dollars to restore habitat to protect endangered species and mitigate infrastructure improvements. But many existing institutions have been stuck in a project-by-project funding model that limits their ability to leverage private capital, integrate different funding sources or even ensure their desired outcomes are achieved.

Without private capital or partnerships, good conservation projects risk getting stuck in the development and permitting stages for decades, or even stalling out indefinitely. This is particularly true for conservation of large landscapes.

Fortunately, a new approach to conserving habitat is building momentum in California that includes proponents beyond just environmentalists. The private sector is taking on more restoration projects, and state agency staff are showing a greater willingness than ever to leverage private sector partnerships and deliver results more quickly.

The diverse group of attendees from state agencies, private investment firms and NGOs agreed that now is the time to move beyond pilot applications and start taking pay-for-performance and public-private partnership approaches to scale.

Krisopher Tjernell, deputy director of the integrated watershed management program at the California Department of Water Resources (DWR), said, “We are hungry for this type of cultural change to be able to implement this work at a large scale.”

In 2016, DWR released a request for proposals for the development of high-quality tidal wetland habitat for delta smelt. DWR based payments on verified habitat outcomes, such as acres of high-quality habitat restored, rather than basic project completion.

By leveraging this innovative pay-for-performance approach, DWR shared risk with private-sector applicants, benefited from outside expertise and resources, and created land acquisition opportunities that would not have been possible through traditional grant funding mechanisms.

DWR estimates an overall cost savings of 40 percent when compared to a more traditional project delivery process, along with a faster project delivery process.

At our November workshop, Tjernell showed off a new video of another successful public-private partnership on a project called the Yolo Flyway Farms Tidal Habitat Restoration, which involves a private landowner and aims to bring back some biodiversity to the Sacramento-San Joaquin River Delta.

A novel pay-for-performance contract was also used in Maryland to improve water quality in the Chesapeake Bay system based on science that quantifies the relationship between linear feet of stream restoration and pounds of nutrient and sediment reduction.

“This is hard work, and … projects can seem doomed at so many points along the way,” Tjernell said. “But this frustration is a symptom of the fact that we are working in one of the most beautifully dynamic systems on the planet.”

Overcoming challenges to set a new path forward

With these examples in hand and a collaborative spirit, we look forward to providing a set of recommendations for incoming Gov. Gavin Newsom’s administration to bring this work to scale.

Ideas include using lessons learned from existing projects to improve contracting terms to maximize outcomes and participation, creating metrics to clearly define desired outcomes, and improving communications among and within multiple agencies.

We will share these recommendations and best practices for innovative conservation finance on the Pay for Performance Toolkit throughout 2019, so stay tuned.